Limited Company Accounting 101: A Beginner’s Guide

Starting a limited company is an exciting journey, but it can also be overwhelming, especially when it comes to accounting. Limited company accounting is an essential part of running a business, and it’s crucial to get it right from the start.
As a beginner, you may be wondering, “What is limited company accounting?” or “How do I keep track of my finances?” This guide will answer those questions and provide you with a solid foundation in limited company accounting.
So, whether you’re a sole trader looking to incorporate or a startup founder starting from scratch, this beginner’s guide will help you navigate the world of limited company accounting.

What is a Limited Company?

Before diving into the accounting aspect, it’s essential to understand what a limited company is. A limited company is a legal entity that is separate from its owners. It is a business structure that limits the liability of its owners.
There are two types of limited companies: private limited companies (Ltd) and public limited companies (Plc). Private limited companies are the most common and are often preferred by small businesses. They have limited liability, meaning the owners’ personal assets are protected.

Why is Limited Company Accounting Important?

Limited company accounting is essential because it helps you keep track of your business’s financial health. It allows you to:

Monitor your cash flow

Accounting helps you keep track of your income and expenses, ensuring you have enough cash on hand to pay bills and expenses.

Comply with legal requirements

Limited companies must comply with various legal requirements, such as filing annual accounts with Companies House and HMRC. Good accounting practices ensure you meet these requirements on time.

Make informed decisions

Accurate accounting records help you make informed decisions about your business’s future, such as when to invest, hire new staff, or expand.

Limited Company Accounting Basics

Now that we understand the importance of limited company accounting let’s dive into the basics.

Choose an accounting method

The two main accounting methods are cash basis and accrual basis. Cash basis means you record income and expenses when they are received or paid. Accrual basis means you record income and expenses when they are earned or incurred, regardless of when you receive or pay them.

Set up a bookkeeping system

A bookkeeping system is the process of recording and organising financial transactions. There are various bookkeeping software options, such as QuickBooks, Xero, and FreshBooks.

Create a chart of accounts

A chart of accounts is a list of accounts used to record financial transactions. It helps organize your transactions and makes it easier to prepare financial statements.

Keep track of income and expenses

Record all income and expenses in your bookkeeping system. This includes sales, purchases, expenses, and any other transactions related to your business.

Prepare financial statements

Financial statements are reports that provide an overview of your business’s financial health. They include a balance sheet, income statement, and cash flow statement.
Limited company accounting may seem overwhelming at first, but with the right tools and knowledge, you can keep your financial records in order and ensure compliance with legal requirements. Remember to choose an accounting method, set up a bookkeeping system, keep track of income and expenses, and prepare financial statements. Hiring an accountant can also provide valuable support and advice. With these basics in mind, you can confidently navigate the world of limited company accounting and focus on growing your business.

Should I Hire A Limited Company Accountant?

Our specialist team of expert and highly qualified limited company accountants are here to deliver everything you need to set up, operate and grow your business.
Operating your own limited company is highly rewarding, but it can also be financially beneficial to undertake. However, amongst managing clients, staffing, organising premises and developing your service offering you will also have to deal with the daunting and difficult task of managing your company’s finances.
Make running your business easier with MJ Kane & Co Accountants. Learn more about our Limited Company Accountants Service.

Company Accounts FAQs

Q. Do I need an accountant for my limited company?

A. No, it is not a legal requirement to hire an accountant, but it is highly recommended. An accountant can help you navigate the complex world of limited company accounting, ensure you meet legal requirements, and provide valuable advice on financial matters.

Q. How often should I reconcile my accounts?

It’s recommended to reconcile your accounts at least once a month. Reconciling your accounts means comparing your bookkeeping records to your bank statements to ensure accuracy.

Q. What is corporation tax, and how do I pay it?

Corporation tax is a tax on your company’s profits. You must pay corporation tax on your profits to HMRC. You must file a corporation tax return and pay the tax within nine months and one day after the end of your accounting period.

Q. What are dividends, and how do I issue them?

Dividends are payments made to shareholders out of a company’s profits. You can issue dividends after paying any corporation tax due. You must record dividends in your company’s accounts and file a dividend voucher with Companies House.

Q. How do I choose the right accountant for my limited company?

When choosing an accountant, look for one who has experience working with limited companies, is knowledgeable about tax law, and can provide valuable financial advice. You may also want to consider their fees, location, and availability.

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